November 26, 2012

BS from the Oracle of Omaha

SUPPOSE that an investor you admire and trust comes to you with an
investment idea. “This is a good one,” he says enthusiastically. “I’m in
it, and I think you should be, too.”

Would your reply possibly be this? “Well, it all depends on what my tax
rate will be on the gain you’re saying we’re going to make. If the taxes
are too high, I would rather leave the money in my savings account,
earning a quarter of 1 percent.” Only in Grover Norquist’s imagination
does such a response exist.

Buffet must think we are such stupid people. No, Warren. We don't forego buying into investment based on our individual income tax rates. But we would think twice about sellling an asset depending upon on the capital gains taxes. The prospect of a future hike in capital gains might encourage us to sell assets sooner, while the prospect of a future drop might make us hold onto an asset a little longer.

Let's say you have a piece of commercial real estate you'd like to unload, not that this is a particularly good time to unload real estate, but work with me here. There are some weirdos who actually try to figure what they're going to get out of a sale after all the taxes and commissions are paid. Not only that, they might actually include capital gains taxes in that calculation.

Now strange as this may sound, some of these folks might actually ask a higher price if the bottom line comes to less than they'd like to get. Yeah, the greedy bastards. And that higher price might make the investment a little less attractive. In fact it might make it so unattractive that a buyer and a seller never reach a deal. And all because of the capital gains taxes.

So, while capital gains taxes may never discourage investors from making investments, they can discourage or even prevent an investment opportunity.

Warren Buffet knows this. He also knows Obama's proposal for taxing the rich won't get us to a balanced budget, and he knows that it won't even put an appreciable dent in Obama's projected annual deficits. Guess whoses taxes have to go up to tackle that problem.